HC Deb 26 January 1993 vol 217 cc1012-20

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Andrew Mitchell.]

12.50 am
Mr. Peter Hain (Neath)

I am grateful for this opportunity to draw the attention of the House to the Government's misguided and doctrinaire policies which mean that a sword of Damocles now hangs over the Post Office, threatening the future of services in rural and valley areas.

For example, the Government's policy of blocking Post Office Counters' desire to offer new business and services has resulted in the closure since 1979 of 2,072 sub-post offices and 561 Crown post offices, making a total of 2,633 local post offices.

Desperately at risk because of the Government's privatisation threat are 10,000 rural offices which form half the Post Office Counters network but provide just 4 per cent. of its volume and are subsidised by nearly £30 million, so they are extremely vulnerable.

In addition, the Government have forced huge negative external finance limit payments from the Post Office of more than £1 billion at constant prices since 1979, and that extra penalty tax has stopped investment to improve quality in postal services, especially in rural and isolated areas.

Because the Government are refusing to allow the Post Office, which is entirely self-financing, to raise finance for its investment and modernisation, that, too, is delaying improvements in quality of service.

In short, the Government's cost-cutting and privatising mania ignores a series of critical questions. For example, if they proceed with their privatisation objectives, who will fund the £200 million rural letters subsidy? The profitable inter-city parts of the Post Office Royal Mail network subsidise the outlying rural deliveries and collection boxes.

Do the Government plan to restrict deliveries in outlying areas to boxes at the bottom of gardens or drives, or do they propose to ensure that residents will have to go to collection points at the centre of villages or outlying areas to collect their mail, rather than have it delivered to their homes?

Mr. Elliot Morley (Glanford and Scunthorpe)

Is my hon. Friend aware that what he has outlined so well is already happening in my rural areas? The village post ladies are being taken to the nearest town and are being replaced by a service from out of the village, coming in by van. Parcels will no longer be left at the village post office but will have to be collected from the nearest town or alternative arrangements will have to be made. That seems to be part of the rationalisation which is linked to the privatisation proposals that my hon. Friend outlines.

Mr. Hain

I agree with my hon. Friend. The point that he makes should be answered by the Minister who is directly responsible.

For example, in Wales, the Post Office is rapidly losing its distinctive relationship with the Welsh people. We have seen substantial cuts in services and jobs. For example, 100 small post office closures have occurred in the past five years, often depriving valley villagers of the last remaining service. In addition, 22 urban and Crown offices have closed—and, more recently, about 600 of the 1,200 remaining rural post offices' opening times have been cut substantially: instead of being open throughout the week, they are to be open several hours weekly.

Moreover, the closure of Post Office Counters headquarters in Bangor and Bridgend will take effect by the summer. Those headquarters will be shifted—to Bristol and Manchester. The move will involve the loss of 120 jobs in Wales; in addition, about 500 postmen's and sorters' jobs will be lost over the next five years as part of Royal Mail's reorganisation and introduction of new technology in Wales.

Parcel depots are being merged as a prelude to privatisation, and 50 jobs in Wales will be lost as a result. Depots in Swansea, Newport and Cardiff are being merged, and some jobs are being transferred to Bristol —again, out of Wales into England. Those 50 job losses exclude future job losses that will occur as a result of the privatisation of Parcelforce. A total of 670 Post Office jobs will be lost over the next five years as a result of the Government's policies, and that excludes the consequences of privatisation.

A monument to the Government's folly is their proposal to privatise Parcelforce. It has been sloppily planned. Characteristically, the President of the Board of Trade was shooting from the hip when he announced the privatisation in July. If I were charitable, I would suggest that he had been set up by his Svengali, the Parliamentary Under-Secretary of State—a Minister who is obsessed with privatisation, regardless of the consequences to the public.

I ask the Parliamentary Under-Secretary to deal with the central issue. Services to rural areas will undoubtedly be threatened by privatisation: 20 per cent. of parcels traffic, worth £50 million, is now handled by Royal Mail Letters on behalf of Parcelforce. That is unprofitable and extremely costly, and the aim of the Government's privatisation proposals seems to be to dump it back on to the public sector.

I hope that we shall receive some straight answers from the Under-Secretary of State about the issue with which the Government are now grappling—the question of VAT. Under schedule 6(3) to the Value Added Tax Act 1983, which implements article 13 of the European Community's sixth directive, the postal services are exempt from VAT, but, as a result of the privatisation of Parcelforce, there will be an immediate price increase of 17.5 per cent.—nearly a fifth—because VAT will be levied.

Businesses registered for VAT will be able to reclaim the money, but that does not apply to the estimated 1.3 million small businesses that are not VAT-registered. Even more important, it will not apply to the ordinary citizens who posted 11 million parcels to one another last year, worth £40 million.

In valley and rural areas, there are effectively no competitors. TNT, Securicor, United Parcel Service and all the other predators waiting in the wings for a privatised parcel service are not interested in delivering to a remote Welsh mountainside, or to a remote village—in the valleys or anywhere else in Britain. Residents will be faced with a price increase of 17.5 per cent., because they will attract VAT. That means that a typical 1 kg parcel charge of £2.50 will jump by 42p to £2.92, while the charge for a large parcel costing £7.80 will jump by £1.36, to £9.16.

On 2 December, at column 282 of the Official Report, the Minister told me that he intended to maintain a uniform tariff for parcels. He dodged the issue on 15 December, when— as can be found in column 147–I asked about the impact on VAT. There will no longer be a uniform tariff, because the businesses that are able to reclaim VAT will be charged 17.5 per cent. less than ordinary individuals who have to pay VAT alongside small businesses. The uniform tariff will no longer exist.

How will charities be affected by this proposal? What about the small businesses that purchased expensive metering and franking machines, because they will not be able to use stamps once Parcelforce has been privatised?

I understand that, because of the intractable problems raised by the VAT issue, the Minister has canvassed the idea of ring fencing parcels posted by individuals across Post Office counters and somehow making them VAT exempt. I do not know whether it can be done without a change in the law. Is the Minister planning to introduce such a change in the Finance Bill after the Budget on 16 March? If he does so, no doubt competitors will protest about unfair treatment. Alternatively, is the Minister's real agenda to privatise the whole of the Post Office, including Parcelforce?

I have seen advice to the Post Office that the £1.4 billion surplus in its pension funds cannot be transferred. Parcelforce's share is worth about £84 million. Parcelforce's employees are entitled to that money because they contributed to the surplus. Will the Minister confirm that it is not possible to transfer that surplus if he privatises Parcelforce?

Will the Minister confirm that the Queen and royal family currently send parcels free—what one might call the royal mail prerogative—that the Government will require a privatised successor to provide those services free and, if so, who will pay for it?

Will the Minister address the question of customs clearance? These matters are central to services in outlying areas and the viability of a future parcels service. Will he confirm that, after privatisation, Parcelforce will operate on the same level as private operators? Its operations may be speeded up as a result, but it will have to be charged extra costs, as the Post Office is currently not charged for customs clearance.

Then there is the perhaps small matter of yellow lines. I am told that guidance is given to parking wardens not to book Royal Mail vans that are parked on single or double yellow lines. Will the Minister confirm that that special privilege will apply after privatisation?

What about the employees, whose legally contracted employer is the Post Office? In 1989, when Parcelforce was separated from the Royal Mail, staff were given the option of transferring to Parcelforce. Many did so on the clear and written understanding that they would remain Post Office employees. The Government propose to break that pledge—to dishonour it or to rat on it. Will the Minister confirm that?

Another example of the overall effect of privatisation on outlying areas is the Government's investment freeze as part of their privatisation of Parcelforce. They have frozen £200 million of Parcelforce's planned £250 million investment in a modernisation programme. As a result, the Coventry hub, a new regional centre linking air to network services, has been postponed. I understand that the £2.5 million needed to purchase the site—a critical part of Parcelforce's new planned network—has been disallowed and that therefore the programme will not go ahead.

The biggest scandal is perhaps the public subsidising the privatisation of Parcelforce. Parcelforce lost £155 million pounds in the years 1990–92. That amount was absorbed by the Post Office—principally by the highly profitable Royal Mail service—but that was our money, which we have paid into the Post Office as a result of using its services. It is public money. In addition, a further £80 million was spent establishing Parcelforce as an entirely separate business, ripe and ready for privatisation. It is outrageous that a total of £235 million has been spent to set up Parcelforce for privatisation. Are the Government suggesting that any new private operator taking on the business will pay that money back to the public? Incidentally, what will happen to the £187 million of outstanding loans that Parcelforce owes the Royal Mail? Will a privatised company pay back that money? The public are subsidising Parcelforce with a total of £422 million in setting it up for privatisation. It should be remembered that the business is worth only half that amount.

Mr. Michael Connarty (Falkirk, East)

Will my hon. Friend raise with the Minister the fact that current Post Office Counters legislation restricts what it can sell and does not allow it the full freedom of any other shop in a rural environment or town?

Mr. Hain

That is an important point. The Government have not allowed Post Office Counters to compete on a level playing field with other businesses. It would very much like to extend its services by operating ticketing, travel and financial services and to undertake the national lottery if that is established. All those initiatives are being blocked by the Government, which puts local post offices under enormous pressure because they are not economically viable.

What guarantee can the Government give that a privatised successor to Parcelforce will always be able to fulfill its duty under the law to maintain a universal service? They can give no such guarantee. What would happen to services in valley and rural areas if the company went bankrupt? Someone will undoubtedly be willing to pick up the profitable but not the unprofitable parts.

It is crystal clear that the proposal to privatise Parcelforce is a dog's breakfast. I urge the Government and ask the Minister specifically to invite the Select Committee on Trade and Industry to investigate it before he and the President of the Board of Trade finalise it and make an announcement to the House.

1.6 am

The Parliamentary Under-Secretary of State for Technology (Mr. Edward Leigh)

I am grateful to the hon. Member for Neath (Mr. Hain) for raising the important issue of the future of postal services in valley and rural areas. I am especially grateful to him for having given me a preview of his speech in The Observer last Sunday. It proved most useful in informing me that various demands would be made of me. I apologise in advance if I am not able to answer all his questions, but I shall try to cover as much ground as I can in the time available.

The House respects the hon. Gentleman's great knowledge of postal matters, which is based on his 15 years as director of research for the Union of Communication Workers. However, I must say that he approaches these issues with a particular political bias, but I forgive him for that.

My right hon. Friend the President of the Board of Trade announced on 29 July 1992 that there was to be a review of the structure and organisation of the Post Office. We are considering a wide range of options, including private sector options, for the Royal Mail and Post Office Counters. We must recognise that the Post Office is first and foremost a commercial business and that our first duty in this matter is to consider what is best for customers of the business, and that is what we shall do.

My right hon. Friend has emphasised that the Government remain committed to a nationwide letter service with delivery to every address in the United Kingdom, within a uniform and affordable structure of prices, and with a nationwide network of post offices. He said when he announced the review, and I repeat now, that these commitments are not negotiable and will remain at the heart of public policy towards the Post Office. All the alternative ownership and structural options are being examined with this in the forefront of our minds. Any reform must satisfy these non-negotiable commitments.

The Post Office is made up of three separate businesses —Royal Mail, Parcelforce and Post Office Counters. I shall speak about each in turn, starting with Parcelforce.

As my right hon. Friend the President of the Board of Trade said in his announcement last July, Parcelforce operates in a fully competitive parcels market. The majority of its traffic is business traffic. For that reason, my right hon. Friend announced his intention to privatise Parcelforce. I believe that Parcelforce can flourish in the private sector. It has a distinctive brand image and a large customer base which are strengths on which it can build.

Energetic commitment and support from the work force have already contributed to Parcelforce's improved financial performance. Such attitudes are vital to the future of the business. Parcelforce needs its employees as much as it needs its depots, its sorting offices and its vehicles.

My right hon. Friend said that he would take advice on the best way to privatise Parcelforce and that he would involve the Post Office board. I am not able to say anything more at the moment about the results of the studies. We are considering the many issues involved.

Mr. Hain

Will the Minister confirm that the Post Office board has made representations to him, and has said that it does not want Parcelforce privatised separately but wishes to keep the whole Post Office together, either as a fully privatised operation or in the public sector with the commercial freedom that he now denies it?

Mr. Leigh

The hon. Gentleman will appreciate that I have had a series of meetings with all interested parties, not only with the Post Office board on a number of occasions, but with the trade unions involved, with interested parties in the public sector and with the Post Office Users National Council. They have given me their advice in the review on the basis of confidentiality. The hon. Gentleman would not expect me at this stage to reveal what the various parties have said to me, but I note the hon. Gentleman's question. We are considering the many issues, involved, some of which the hon. Gentleman has touched on, including the best way to secure the universal parcel service. That is not a process that can be rushed.

The hon. Gentleman has questioned the future of rural parcel services once Parcelforce is privatised. He made some personal comments about me in his speech, but I forgive him for that. However, this is a debate about rural services. He will appreciate that I have one of the most rural constituencies in the country, covering about 750 sq miles. As I am charged with looking after the Post Office, not in terms of operational matters, to which the hon. Gentleman referred in his intervention, but in terms of overall policy, I assure him and give him the commitment from the Dispatch Box that whenever I am considering matters appertaining to the Post Office, it is rural areas, and the needs of rural consumers, of those who live in villages and of those who attach great importance to the village post office, which are uppermost in my mind. The other point that is uppermost in my mind is ensuring that the Post Office has a bright, competitive future.

Mr. Morley

My point concerns the village of Winterton where I live. The jobs of the three village post ladies are under threat in the reorganisation. The service is deteriorating in the sense that people can no longer collect bulky items from the local sub-post office. Having raised the matter with the Minister, will he use his influence to make representations to the Post Office board to reconsider the matter?

Mr. Leigh

I know the village of Winterton. The hon. Gentleman is quite entitled to raise the matter. It is an operational matter, but following the debate I will contact Mr. Mike Heron, the new chairman of the Post Office, and convey to him the deep concern of the hon. Gentleman and his constituents in the matter.

I can assure the hon. Member for Neath that the service to rural communities is not in doubt. My right hon. Friend said clearly in his announcement to the House on 15 July that the continuation of a universal parcel service at a uniform and affordable tariff—I emphasise the word "uniform"—was not negotiable. That means that users of the standard parcel service can still expect to have parcels delivered anywhere in the country within a few working days. The general public use Post Office Counters to send parcels. They can leave parcels to be collected at any of the 20,000 post offices in the country, however remotely located. Charges are based on a simple weight-related tariff so that it costs no more to send a parcel 300 miles than 10 miles. It makes good sense for each aspect of the service to continue, because that is what the public are familiar with and find convenient. Of course, it has been a traditional part of our Post Office.

Mr. Hain

What about VAT?

Mr. Leigh

In the time available to me I shall reach that point.

We are still looking at how the Parcelforce pension surplus should be dealt with. It is a complex and highly technical issue. The options need to be identified and clarified. I cannot say what the conclusions will be.

Another issue that we are considering is the value added tax position of a privatised Parcelforce. The hon. Member for Neath has been speculating that a privatised Parcelforce will be obliged to charge VAT. He has made that point several times before. He has said that that would put up the price by 17.5 per cent. Such speculation is idle. We have not yet decided on the appropriate VAT treatment for Parcelforce in the private sector. There are many issues to be addressed and we are looking closely at them all in consultation with the European Commission, which obviously has an interest in the matter. It is foolish to wring our hands and speculate about price rises when no decision on the matter has yet been made.

Mr. Jim Cousins (Newcastle upon Tyne, Central)

The Minister has said several times that the matter is complicated in the context of VAT and a chain of other issues and that it must not be rushed. When the President of the Board of Trade announced the possible privatisation of Parcelforce in July, he promised a statement in December. Can the Minister give us some idea when the matters which at the end of January still cannot be rushed may be brought to a conclusion?

Mr. Leigh

We have had a Post Office for some three and a half centuries. I assure the hon. Gentleman that we will not take three and a half centuries over the review, but I cannot give him any more information than that. This is a serious and complex issue. Both my right hon. Friend the President of the Board of Trade and I are determined to ensure that we get it right and that we consider all the options. In good time, my right hon. Friend will come to Parliament when he and his senior Cabinet colleagues have made a decision. The process will not be rushed, so I cannot give the hon. Gentleman a firm date when a statement will be made. It will be made at the right time. It will be made at a time which will allow us to introduce legislation at a suitable point, if that is what we have to do.

Mr. Cousins

Is the Minister saying that the privatisation of Parcelforce alone—separate from the rest of the Post Office—is a matter that will require legislation?

Mr. Leigh

I did not say that. Our advice is that if we decided to privatise Parcelforce alone, it would not require legislation. I think that the hon. Gentleman knows that already.

Royal Mail provides the fastest and best value—for —money postal service in Europe, and it is not resting on its laurels. In each of the last four years the Post Office has recorded a significant improvement in its delivery performance, as measured by independent researchers. In the first six months of the financial year, Royal Mail's quality of service climbed to record levels, with 91.5 per cent. of all first class mail reaching its destination the following day after posting. This compares favourably with other EC countries. Since 1990, the British Post Office has led Europe for quality of service and value for money in terms of speed of delivery. Royal Mail is, indeed, the only postal administration in the world to conduct independent end-to-end monitoring of service quality.

In the Swansea postal district, which covers the constituency of Neath, 93 per cent. of all first class letters are now delivered by the next working day. Indeed, Wales as a whole, even in the most rural and remote of areas, has a service which is better than the national average. My own constituency is in the Lincoln postal district, where 95 per cent. of first class letters are delivered the next working day. I am sure that the hon. Gentleman will agree that those are excellent performance figures.

The figures show Royal Mail's commitment to service in rural areas and there is no reason to believe that this will change. However, the Royal Mail faces change in many other respects. It no longer has a monopoly over express products and unaddressed mail, its direct mail services face competition from other forms of advertising, and competition from the telecommunications sector is ever growing. Now is the time to consider the potential impact of these changes on Royal Mail.

The reason for the review is to explore ways in which the organisation and structure may need to adapt to enable Royal Mail to face new challenges and benefit the consumer. I stress that no decisions have yet been taken, but in terms of Parcelforce, the hon. Member may be assured that the manifesto commitments to a universal letter service and a uniform tariff structure are non-negotiable and will be maintained.

With regard to Post Office Counters and the network of post offices, I remind the hon. Member of the clear, unfettered commitment in our manifesto to a nationwide network of post offices. I do not recall seeing any such commitment in the honourable Member's party manifesto. Post offices and their customers throughout the country can therefore rest assured that whatever solution we adopt for the Post Office and its constituent parts, whether in the public sector or in the private sector, our manifesto commitment will not be compromised.

That does not, of course, mean a guarantee that no post office will ever close. That would be an absurdity. The precise number and location of offices has to adjust to shifts in population, and to changes in the requirements of clients and customers. Our commitment is to maintain a readily accessible network which fully satisfies the social, industrial and commercial needs of the United Kingdom.

I echo the hon. Member's sentiments about the importance of the rural sub-post office network. These small post offices play a vital role—

The motion having been made after Ten o'clock and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at twenty minutes past One c'clock.